March 29, 2017

Supreme Court Decides Expressions Hair Design v. Schneiderman

On March 29, 2017, the U.S. Supreme Court decided Expressions Hair Design v. Schneiderman, No. 15-1391, holding that New York General Business Law § 518, which prohibits merchants from posting a cash price and imposing a “surcharge” on customers who pay with a credit card, regulates how sellers may communicate their prices, and thereby regulates speech. The Supreme Court remanded the case to allow the Second Circuit to determine whether § 518 is constitutional under the First Amendment.

When a consumer uses a credit card to purchase an item, the merchant selling that item is required to pay a transaction fee to the credit-card issuer. In an effort to pass on these fees to the customers who use credit cards, some merchants wish to impose differential pricing—i.e., to either impose a surcharge for the use of a credit card, or give a discount for the use of cash. Section 518 prohibits the former practice—i.e., imposing a surcharge over the “posted price”; it does not prohibit a merchant from offering a discount for cash.

Five New York businesses challenged § 518, arguing that it regulates their speech by dictating how they describe their pricing practice when it comes to credit-card use, and therefore violates the First Amendment and is unconstitutionally vague. The district court entered summary judgment in favor of the businesses, but the Second Circuit reversed, holding that the statute was simply a price regulation, not a speech regulation that was subject to First Amendment analysis.

The Supreme Court vacated the Second Circuit’s decision. The Court first agreed with the Second Circuit that § 518 prohibits the merchants’ “surcharge” pricing scheme. Although § 518 does not define the term “surcharge,” the Court of Appeals looked to the ordinary meaning of the term to conclude that a merchant imposes a surcharge where a single “sticker price” is posted and credit-card customers are charged more than that sticker price. But the Court then disagreed with the Second Circuit’s conclusion that the statute was simply a price regulation. The Court observed that § 518 is not like a typical price regulation that regulates only conduct, because it does not dictate the amount a merchant may collect from a cash or credit-card payer. Instead, the statute regulates how merchants may communicate their prices. If a merchant wishes to post a single sticker price, he may not post “$10, with a 3% credit card surcharge” or “$10, plus $0.30 for credit”; instead, the merchant must display $10.30 as his sticker price. The Court thus held that, “[i]n regulating the communication of prices rather than prices themselves, § 518 regulates speech.”

Because the Second Circuit concluded that the statute did not regulate speech, that court did not examine whether § 518, as a speech regulation, survived First Amendment scrutiny. The Supreme Court therefore remanded the case to the Court of Appeals to consider that question in the first instance. The Court also rejected the merchants’ argument that the statute is impermissibly vague, because the only pricing practice they seek to use is clearly proscribed by the statute.

Justice Roberts delivered the opinion of the Court, in which Justices Kennedy, Thomas, Ginsburg, and Kagan joined. Justice Breyer filed an opinion concurring in the judgment, and Justice Sotomayor filed an opinion concurring in the judgment, in which Justice Alito joined.

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